What Is Bitcoin? FAQs About The Digital Currency

Bitcoin has been making headlines all over the world for more than a year, but exactly what is it? Studies show that most Americans have either no idea or just a vague idea. Put quite simply, bitcoin is a string of computer code that’s formed when computer bitcoin miners solve complex math problems. However, the digital currency has gone beyond just the basics, as major investors begin to gamble some of their money in the market. In fact, the term “digital currency” isn’t really accurate any longer as many are beginning to see bitcoin as more of a payment system rather than a currency.

So here are answers to some of the most burning questions about bitcoin.

What about those physical bitcoins?

So if bitcoin is nothing but computer code, what about those physical coins you may have seen? As the BBC reports, those coins are nothing but a novelty. The true value lies within them, as they carry the computer codes which actually hold the real value inside of them.

However, if you remove that code, then the physical coin itself is actually worthless.

Can I buy things with bitcoin?

The number of places where you can buy things with bitcoin has been increasing steadily. One of the more well-known retailers which recently started accepting bitcoin as payment is Overstock.com. The ecommerce company’s management believes other companies will soon follow suit, possibly even Amazon.com, Inc. (NASDAQ:AMZN) one day. Of course in order to buy things with the digital currency, first you have to have some. You can acquire them either through an exchange or digital wallet company like Mt. Gox or Coinbase or let someone else pay you in bitcoin.

Buying things with bitcoin isn’t the same as it was. Before the digital currency leaped into the spotlight, it was mainly used by drug dealers and buyers and sellers of other illegal items on sites like Silk Road, which was shut down by the FBI late last year. Because of this, they were once seen as the currency of criminals, but that view is quickly changing.

Are bitcoin transactions truly untraceable?

One of the reasons criminals liked to use bitcoin for illegal transactions was because those transactions flew under the radar of global regulators. This is changing, however, as the world’s regulators consider ways to tax these transactions and even use the digital currency as a payment service.

So in terms of regulation, bitcoin transactions are still untraceable, but if you did get your hands on one, you could trace where that particular bitcoin had been. Each transaction which involves this digital currency is logged in the individual code as the coin gets passed along. That log is called the blockchain, and it’s how retailers can make sure that people aren’t spending bitcoins they don’t actually own or making copies of them.

However, in spite of this blockchain, use of the digital currency is still fairly anonymous, so while you can trace each one, account numbers and identities are essentially hidden, which is another reason the digital currency is considered to be untraceable.

How secure are bitcoins?

Because bitcoin is essentially nothing but computer code, security is certainly a risk. There have been reports of hackers breaking into digital wallets and stealing those valuable strings of code, and there was at least one person who accidentally threw out a thumb drive which stored his bitcoin. However, as with any kind of money, security is about as good as the storage option you choose.

And then there’s the topic of whether bitcoin is secure as an investment, and this one is anyone’s guess. The digital currency’s value has been extremely volatile as the slightest bit of news can move the needle in either direction.